Search results for: Dunning Kruger

The First Rule of Dunning Kruger…

 

Of all the cognitive errors in behavioral finance and human psychology, the one that creates the most confusion is the Dunning-Kruger effect. (Perhaps its rise in pop culture is to blame). Regardless, I find DKE to be an incredibly useful tool that helps explain many of the individual errors we see in investing.

It’s useful to think of Dunning Kruger in terms of metacognition: One’s ability to self-evaluate a particular skill set. Metacognition appears to be a discrete skill unto itself, one that unsurprisingly increases along with the underlying skill. As you improve at a “thing,” your ability to evaluate your skills at that “thing” also increases.

Note that “Unskilled and unaware of it” is more than mere overconfidence, hubris or incompetence; it’s a very specific way to describe not just an overestimation of skills, but a way to framing that helps us understand why that error occurs, and how it manifests in human decision-making.

Yes, the least competent suffer from the Dunning-Kruger effect, but so too do those of average competency, albeit by a lesser degree. Even experts can show the effects of DKE, as their deep knowledge and awareness of difficulty may lead them to underestimate their own abilities.

Metacognition is a tricky thing.

There have been repeated attempts at debunking Dunning Kruger over the years, typically by mathematicians arguing a lack of statistical significance versus mere random noise. I remain unconvinced by those arguments, especially given that larger studies have confirmed the original underlying research.

About those experts: It is a feature of the genre that some very smart people can suffer from “deformation professionnelle” – a DKE-related tendency to view the world through the lens of one’s own profession. Hence, we should not be surprised that a mathematician looks at a psychological phenomenon and sees only the statistics.

“Does anyone know what Dunning Kruger actually is?” has a delightful recursive character – the first rule of DKE is you don’t know you are in DKE – and has a fractal-like character that mathematicians should appreciate.

The all too obvious irony of a mathematician performing statistical analysis on psychology research unaware of the potential error in the psychological half of his analysis is from whence we get our title: The first rule of Dunning Kruger club is that you do not know you are in Dunning Kruger club…

 

UPDATE: May 25th, Noon

I reached out to Professor David Dunning, who adds:

“One universal problem is we don’t know how shallow our understanding is. DKE critics construe the research as being one or two studies from 1999, hard stop. Either they do not realize the complex story that has emerged after 20+ years of research, and data contrary to their conclusions, or haven’t taken the pains to survey the current literature, whether about the specific DKE they critique or the trouble with knowing your ignorance in general.

Consider in psychology the related phenomenon of the illusion of explanatory depth. Ask people if they can describe how a helicopter (or a bike, or zipper) works and they answer “Of course!” Then ask them to do so and they quickly realize the large gaps in their knowledge…”

That really helps fill out the academic debate…

 

 

Previously:
What if Dunning Kruger Explains Everything? (February 27, 2023)

MiB: David Dunning on Metacognition (March 21, 2020)

 

Sources:
Unskilled and unaware of it: How difficulties in recognizing one’s own incompetence lead to inflated self-assessments
Kruger, J., & Dunning, D.
Journal of Personality and Social Psychology, 1999

Yes, The Dunning-Kruger Effect Really Is Real
Stuart Vyse
Rational Skeptic, April 7, 2022

The Dunning-Kruger effect revisited
Matan Mazor & Stephen M. Fleming
Research Department of Experimental Psychology, April 8, 2021

A rational model of the Dunning–Kruger effect supports insensitivity to evidence in low performers
Rachel A. Jansen, Anna N. Rafferty & Thomas L. Griffiths
Nature Human Behaviour, February 25 2021

 

See also:
Debunking the Dunning-Kruger effect – the least skilled people know how much they don’t know, but everyone thinks they are better than average
By Eric C. Gaze,
The Conversation, May 23, 2023

Math Professor Debunks the Dunning-Kruger Effect
By Eric C. Gaze
SciTechDaily, MAY 9, 2023

 

What if Dunning Kruger Explains Everything?

 

Physics has been seeking a grand “Unified Field Theory” that can explain everything in the universe. I sometimes wonder if we can find a similar overarching theory covering bad decision-making. The closest I have found as a single point of failure is the Dunning Kruger effect.

Recall last week, we were thinking about the impact of retiring Baby Boomers on the equity markets and of rising rates on housing. Rereading that this morning, I realized I buried the most important part of the discussion:

“Both questions are a fascinating reveal of how a common understanding of complex subjects barely scratches the surface of the rich complexities that lay beneath. All too often, the superficial narrative fails to capture the reality beneath.”

The discussion was really about how the “conventional wisdom” is often only a superficial read, and how initial appearances can be misleading due to complexity we may not be aware of. Rates are obviously important to housing, but we must also recognize that they are far from the sole driver of the residential real estate market. Many other factors can be as or even more important.

Our own lack of depth in a specific skillset is why we miss that complex reality. As a species, our tendency is towards combining a little bit of knowledge with some overconfidence. This combination easily leads to fundamental misunderstandings.

Can this one-two punch explain why it is so easy to get so much wrong in the capital markets so often?

Let’s consider another question, this one on U.S. equity valuations:

“Baby-boomers’ huge flow of 401K plan contributions helped to drive equities higher; now that ~70 million Boomers are retiring, when do demographics flip this from a huge positive to a net drag?”

The demographic question touches on a big issue: $6 trillion dollars in 650,000 (401k) retirement plans held by tens of millions of Americans. The initial assumption is the retiring boomers matter a great deal, but a deeper dive into the structure of equity ownership suggests that it probably does not.

I suspect most of us have a distorted viewpoint of the average investor versus the total capital in the market. As the charts above and below show, the vast majority of equities are held by the top 1% and 10%. This demographic cohort is simply not a net seller due to impending retirement because the tax consequences would be too great. My experience is this group takes a comprehensive approach to managing generational wealth transfer, philanthropy, trusts, etc. so that their assets move with as little capital gains tax paid as possible.

Note that the vast majority of stock held by individuals — the top ~10% of stock owners who control ~75% of all equities — is likely to manage their assets this way.

Adding a layer of complexity, at one point in time, all of these stocks were owned directly by individuals as specific company stock. As Ben pointed out via his favorite chart at top, ownership of U.S. equity market since 1945 has shifted dramatically to different investment vehicles. U.S. households once owned 95% of all stocks individually in brokerage accounts;  today, ownership is is via ETFs, mutual funds, pensions, hedge funds, foreign investors, etc.

Estate taxes are why appreciated equity is transferred this way. These scenarios do not usually involve much stock selling. But as we have seen, most people have little idea about exactly how top-heavy equity ownership is. The market is far bigger, more professional, and much more institutionalized than most people realize.

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Unrelated story: A few years ago, a friend came out with a fantastic idea for an Index and ETF; even better, he managed to snag an amazing stock symbol. (I am purposefully omitting the specifics and the names of the fund managers, sponsors, banks, etc.) It had an ESG twist, and so was a potential fit for foundations, endowments, family offices, etc. He put together a great board of advisors, a clever idea for adjusting the index — it was all so brilliant. The index even outperformed its S&P500 benchmark all 5 years running.

Despite all of those great elements, it gained no traction. Even the outperformance and the hot sector it was in failed to attract much institutional capital. Five years later, despite the idea and ticker still being great (at least in my mind) the fund shut down due to lack of interest.

I asked my buddy if he had any interest in selling the stub (assets include name, intellectual property, board, ticker symbol, etc.) for pennies on the dollar. I still like the idea, and imagine how easy it would be to turn it into a giant success, a billion dollar ETF winner.

Before putting any time or capital at risk, I wanted to discuss it with an expert. In my circles, nobody knows more about the ETF industry than Dave Nadig. We looked at the idea and who the potential ETF/index buyers might be. We kicked around how the target demographic makes these decisions, how they check which box, who they consult with, what other parties advise the decision-makers. Last, we considered why other like-minded funds similarly failed to attract much capital.

Our key conclusion? Despite the sexy idea and stock ticker and great performance — and my enthusiasm — it was only a so-so investing vehicle, unlikely to attract much capital. Endowments, Foundations, and other big institutional buyers would rather create their own stock screen and buy the positions themselves than outsource that to a third party that pre-packaged it into an ETF.

Hence, I saved a lot of time and work and headache and capital, simply due to my awareness of my own astonishing ignorance. I don’t usually think of humility as my strong suit, but I would chalk this one up to a mix of concern, fear and recognition of my lack of competency in this space.

I consider that a giant win…

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Danny Kahneman has suggested that simply knowing about cognitive biases does not help in the fight against succumbing to their effects. I never want to be on the opposite side of an intellectual argument with Kahneman; however, I take hope that some of the more egregious errors can be avoided. When we look for disconfirming evidence, we can avoid some aspects of confirmation bias. Similarly, instead of thinking about things in terms of what we do know, perhaps it might be more useful to consider thinking more in terms of what we might not know. Hey, perhaps we can even make better decisions this way.

Humility is deeply undervalued on Wall Street.

 

 

 

Previously:
What If EVERYTHING Is Narrative? (June 21, 2021)

What If Everything is Survivorship Bias? (aka The Hidden World of Failure) (October 23, 2020)

 

Stock Ownership:
Distribution of Household Wealth in the U.S. since 1989 (March 10, 2020)

Stock Ownership in the USA (January 14, 2020)

Wealth Distribution Analysis (July 18, 2019)

Composition of Wealth Differs: Middle Class to the Top 1% (June 5, 2019)

Wealth Distribution in America (April 11, 2019)

US Wealth Distribution, Stock Ownership Edition (June 30, 2017)

 

The Hype Cycle, Expertise & Dunning Kruger

 

I am always fascinated when seemingly random sources converge on the same concept. The current convergence involved some research I was doing centered on Dunning Kruger, Vanguard’s Tim Buckley, my partner Josh’s AI/ChatGPT post, and the general state of the market. It’s like a real-time version of “The Blind Men and the Elephant,” by John Godfrey Saxe.

In our conversation at ETF Exchange, Buckley talked about what he learned from the errors he made early in his career: “In the 1990s, the internet was a huge innovation that was going to change how we lived and worked – but that did not mean it could not also be a tremendous bubble.” He referenced the Gartner Hype Cycle (chart at top) as an example.

Josh’s post got me thinking along the same lines. I could not help but notice that the Gartner Hype Cycle looks remarkably similar to the Dunning Kruger effect. If you consider the two, it is unsurprising. I suspect the nexus between them is based on subject matter expertise.

Perhaps it is the “void” of experts in each that more accurately describes the connection.

Whenever a truly new and innovative technology comes along, there are a tiny number of people who have actual expertise in the space. This creates a void which is filled by opportunists who have identified a less competitive, less crowded field. And so, lots of people stake their claim in the new frontier. A land rush mentality can easily develop around the new idea.

In many of the newest new things, a serious expertise is needed: Think fiber optics, software, or biotech.1 Often, the minimum required expertise is substantial and daunting, and this tends to dampen the enthusiasm of rank amateurs.

But other such new worlds were wide open. The ’49ers gold rush appeared to require nothing more than a willingness to go out West and work hard (the reality was not quite that simple). Michael Dell famously sold PCs out of his dorm room; in the early parts of the 20th century, Ford & GM were survivors of numerous new automakers. Consider all of the new entrants who piled into telegraphs, railroads, radio, automobiles, dotcoms, computers, and crypto, with less successful outcomes.

Where Dunning Kruger/Hype Cycle seems to overlap the most is when a new product has a low hurdle rate. I was always amused by the “expert” pitches I got from the new social media wizards who had few followers on Twitter, Instagram, or TikTok.2 And what precisely was your expertise in Bitcoin that allows you to predict a price of $200,000, $500k, or even a million dollars? Overconfidence leads many things to appear to be simple but they are actually hard.

Nature and capitalism both despise a vacuum.

When a truly novel situation comes along, it creates a heady mix of excitement and money-making possibilities. Few experts are known to the public and the media. Hence, the wide-open field with much less competition leads to a natural desire to jump in and grab those profits.

I always wonder how much of our cognitive foibles are evolutionary baggage. Unwarranted self-confidence worked wonders on the savannah for the species hunting mammoths, even if everyone was not fortunate enough to survive the hunt and return to the cave safely. But the group, as a whole benefitted.

What worked a million years ago is not typically what works in the capital markets today…

 

See also:
The AI Bubble of 2023 (Reformed Broker)

 

Previously:
Simple, But Hard (January 30, 2023)

Masters in Business Live With Vanguard’s Tim Buckley (February 6, 2023)

 

__________

1. The obvious theory as to why Theranos crashed and burned, was it was fatally flawed from its inception. By relying on the vision of a person completely lacking in any skills or expertise (or even a background) involving blood technology.

2. See footnote 2, here.

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YANSS: The Dunning-Kruger Effect

Have you ever been confronted with the fact that you were in over your head, or that you had no idea what you were doing, or that you thought you were more skilled at something than you actually were? At its most extreme, this is called the Dunning-Kruger effect – the fact that it is very easy to be both unskilled and unaware, and in this episode we explore how it works and where you might expect to see it your own life.

 


Source: YANSS

 

 

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Alan Greenspan on the Dunning–Kruger Effect

Did I write The Dunning–Kruger effect?

I mean “Activism.”

You see, Mr. “1%.FOMC.Rates-Nonfeasance-banks.can.self.regulate-its.called.innovation-Greenspan.Put,” had the unmitigated gall, the colossal cojones, the planet sized testicles to blame the current slow recovery on Government Intervention!

Given how utterly unaware the former Fed Chairman is of his own gross incompetentcies, I thought if I used the actual, title no one would believe me.

Alan Greenspan on Activism

Abstract: The US recovery from the 2008 financial and economic crisis has been disappointingly tepid. What is most notable in sifting through the variables that might conceivably account for the lacklustre rebound in GDP growth and the persistence of high unemployment is the unusually low level of corporate illiquid long-term fixed asset investment. As a share of corporate liquid cash flow, it is at its lowest level since 1940. This contrasts starkly with the robust recovery in the markets for liquid corporate securities. What, then, accounts for this exceptionally elevated level of illiquidity aversion? I break down the broad potential  sources, and analyse them with standard regression techniques. I infer that a minimum of half and possibly as much as three-fourths of the effect can be explained by the shock of vastly  greater uncertainties embedded in the competitive, regulatory and financial environments faced by businesses since the collapse of Lehman Brothers, deriving from the surge in government activism. This explanation is buttressed by comparison with similar conundrums experienced during the 1930s. I conclude that the current government activism is hampering what should be a broad-based robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.

Perhaps Messrs Dunning and Kruger would not mind if we renamed their research the Alan Greenspan Effect?

>

Source: PDF
Greenspan on Activism
Council on Foreign Relations
http://www.cfr.org/thinktank/cgs/

MiB: David Dunning on Unknown Unknowns

Note: we recorded this March 3, just before the work-at-home lockdown had begun.

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In 1999, David Dunning, professor of psychology at the University of Michigan, co-wrote a paper with colleague Justin Kruger on metacognition. Titled “Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments“ (PDF), the paper describes why so many of us who are unskilled are also wholly unaware of our own lack of skills. The results of that landmark research became known as He as Dunning Kruger effect.

Much of Dunning’s academic work has explored the psychology underlying human misbelief. In our Masters in Business conversation, we discuss those issues of skill and self-evaluation — and how the second depends upon the first. Self-evaluation is very much dependent on the underlying skills.

Dunning notes that we all have our own pockets of ignorance, and we can wander into them at any time. A cautionary example he uses is that of new pilots. New pilots with 100 hours of training are not as dangerous as those pilots with 700-800 flight hours. More hours than rookies but much less than experts, this mid group is in what aviation professionals refer to as “the killing zone.” They know enough to think “I got this,” when they really don’t. The results are often catastrophic.

Dunning’s research also focuses on Social Norms, and its impact on peoples’ thoughts and behaviors. He also studies Hypocognition, the state of not having a concept about your own blind spot. For their great insights, the Dunning & Kruger were awarded an igNoble Award in 2,000.

His favorite books can be seen here; A transcript of our conversation will be available here.

You can stream and download our full conversation, including the podcast extras, on Apple iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Wall Street Journal’s NBA correspondent Ben Cohen. His new book is The Hot Hand: The Mystery and Science of Streaks was just released.

 

 

Transcript: David Dunning

 

 

The transcript from this week’s, MiB: David Dunning on Metacognition,  is below.

You can stream and download our full conversation, including the podcast extras, on Apple iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

 

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BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: Masters in Business is brought to you by the Iowa Economic Development Authority with a commitment to innovation and a business friendly climate, offering numerous competitive advantages, Iowa is ready to become your next big discovery. Learn more at ThisIsIowa.com.

VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: This week on the podcast, I have an extra special guest and what can I tell you? His name is on the tip of your tongue, you know all about his research, you know all about the charts that the intranet created based on his research, you probably didn’t know that that wasn’t originally his work.

David Dunning, famous for the Dunning-Kruger effect, are Professor of psychology at Michigan. We talked about everything, his research, why people don’t know what they don’t know, how we could get better decision-making, just absolutely a fastening conversation. If you’re at all interested in human cognition and psychology in why we think we’re better at tests than we really are, then you are going to find this to be an absolutely fascinating discussion.

So with no further ado, my conversation with David Dunning.

VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My extra special guest this week is David Dunning, he is a Prof of psychology at the University of Michigan where he focuses on the psychology underlying human misbelieve. He is best known for his 1999 study with colleague Justin Kruger, Unskilled and Unaware of it, How Difficulties in Recognizing One’s Own Incompetence Lead to Self-Inflated Assessments. Dunning-Kruger showed that people who were the worst performers significantly overestimated how good they were. He is also the author of the book “Self Insight, Roadblocks and Detours on the Path to Knowing Thyself.”

David Dunning, welcome to Bloomberg.

DAVID DUNNING, PROFESSOR OF PSYCHOLOGY, UNIVERSITY OF MICHIGAN: It’s a pleasure to be here.

RITHOLTZ: I have been looking forward to this conversation for a long time, I am a giant fan of your work and I have to start with a really simple question, what’s the origin of the study? What led you to a thesis that we’re really bad at self-evaluation?

DUNNING: Well, if you’re an academic, you meet up with many students, and you meet up with many colleagues who say outrageous things. And you just have to wonder don’t they know what they are saying is, let me say this diplomatically, odd, sub-optimal, and over the years, I just was intrigued with finding out whether or not people knew when they were saying things that were outrageous, were obviously wrong on the face of it.

And so one day Justin Kruger walked into my office, said he wanted to do a study with me, and I said well I have this high risk reward study to do, and it has to do with a question I have often wondered about.

And so we did the first original series of studies and were astonished at how little people who don’t know, didn’t know about how little they knew.

RITHOLTZ: So I was on the impression that most academics have a thesis and there’s some data supporting it and when they go out and test it, they have a little confirmation bias and they see what they expected to see, you’re saying you guys are just shocked by the results of the study?

DUNNING: That’s right. I mean we expected it to work because if you think about the logic of it, it has to work. The question was one of magnitude. When a student was failing the course for example or given a pop quiz on grammar, did they have some inkling that they were performing really poorly? And the answer was maybe a little but not much and they are missing their true performance level by a mile.

RITHOLTZ: By a mile, so how much of this that really raises am a number of questions. So I love the phrase metacognition, the ability to self evaluate your skill set and your findings essentially find that this is highly correlated with an underlying skill. And whenever I try and explain this to a layperson, it’s pro golfers know how good they are and where the weaknesses in their games are, amateurs have no idea that there are not remotely as good as they think they are, is that a fair…

DUNNING: Oh, e I’m a perfect example of this, so when I go out and golf, I often end up in the rough when I drive the ball, and then I see the ball go in the rough, and then I go out to find it later on and I’m always overguessing how far the ball went in the rough by about 20 to 30 yards.

And I know this, yet every time I drive the ball into the rough, I’m looking in the wrong place. So yes, I mean, amateur golfers don’t know such terms as course management for example. There’s a number of concepts, a number of ideas, they just simply don’t have available to them.

And as a consequence, they think they are doing the best possible job when in fact, there’s a whole realm of competencies they don’t know about.

RITHOLTZ: They’re just wholly unaware of what they don’t know about.

DUNNING: That’s right.

RITHOLTZ: So you begin the 1999 paper with a amusing anecdote, tell us about the Pittsburgh bank robber, McArthur Wheeler.

DUNNING: Well, McArthur Wheeler was a aspirant our bank robber who decided to go out and rob but needed a disguise and he had heard that if you rub your face with lemon juice, it renders the face fuzzy or even invisible to bank security cameras. And so he actually did test it out, he actually rubbed his face with lemon juice at home, pointed a Polaroid camera or whatever at his face, and then he wasn’t there, he misaimed the camera.

RITHOLTZ: (LAUGHTER) He thought he was invisible.

DUNNING: He thought he was invisible, he went out with no actual disguise, robbed two Pittsburgh area banks during the daytime, was immediately caught on security cameras, those tapes were broadcasted on the news.

And he himself was caught before the 11 o’clock news hour. And he was incredulous because as he said, I wore the juice, I wore the juice. And so thus ended his career, but these are the sorts of mistakes we make all the time, we think we have a strategy that’s going to work and to our surprise, the world has a different lesson for us to learn.

RITHOLTZ: So metacognition sometimes looks a little bit like overconfidence, how similar or different are the two?

DUNNING: Well, metacognition is a number of things, a number of skills that underlie being able to evaluate your judgements, evaluate your decisions, so often it’s overconfidence, usually it’s overconfidence, it can be underconfidence, thinking you can’t do something that you can do. It might be overconfidence or underconfidence but does your confidence rise and fall with the accuracy of your judgements.

So is there a relationship whether or not your confidence is a speedometer that overstates or understates how well you are doing. But there — it also is knowing how to make a judgement, knowing when to stop thinking and start acting, so knowing when there is a doubt that you really should be following up on.

So overconfidence is a phenomenon I think that lies within a hall family of skills that you can call metacognition which is basically skill in knowing how to evaluate your thinking and control your thinking.

RITHOLTZ: Quite fascinating.

 

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MiB: David Dunning on Metacognition

 

 

This week, I sit down with David Dunning, professor of psychology at the University of Michigan, where he focuses on the psychology underlying human misbelief. He is best known for the Dunning Kruger effect, his work (with colleague Justin Kruger) on metacognition, and why the unskilled are unaware of their own lack of skills. The original 1999 paper is Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments (PDF)

Dunning’s work focuses on the psychology underlying human misbelief. We discussed skill and self-evaluation, and the issue of how the second depends upon the first. (Self-evaluation is very much dependent on the underlying skills).

Each of us have our own pockets of ignorance, and we can wander into them at any time. A cautionary example Dunning uses is those of new pilots. It is not the pilots with 100 hours of training who are dangerous; rather, its those pilots with 700-800 flight hours who are in “the killing zone.” They know enough to think “I got this,” when  they really don’t. The results are often catastrophic.

Dunning’s research also focuses on Social Norms, and its impact on peoples thoughts and behaviors. He also studies Hypocognition, the state of not having a concept For their great insights, the Dunning & Kruger were awarded an igNoble Award in 2,000.

His favorite books can be seen here; A transcript of our conversation will be available here.

You can stream and download our full conversation, including the podcast extras, on Apple iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Note: we recorded this March 3, just before the work-at-home lockdown had begun. Before you listen, I must apologize in advance for my fanboyness. It is less noticeable on the broadcast, but on the podcast extras, it is obvious and embarrassing when Professor Dunning mentioned the daily reads — you might not be able to tell, but I can hear myself losing my own $h*t, and then wildly overcompensating by mindlessly blathering. Rather than delete this embarrassment, I left it in. Hey, if you are that deep into the pod, you deserve to know exactly how ridiculous your host is.

Next week, we speak with Wall Street Journal’s NBA correspondent Ben Cohen. His new book is The Hot Hand: The Mystery and Science of Streaks was just released.

 

 

 

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At the Money: Why Self-Insight Is So Important  

 

At the Money: David Dunning professor of psychology at the University of Michigan (January 10, 2024)

How well do you understand yourself? For investors, it is an important question. We’re co-conspirators in self-deception and this prevents us from having accurate self-knowledge. This does not lead to good results in the markets.

Full transcript below.

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About this week’s guest:

David Dunning is a professor of psychology at the University of Michigan. Dunning’s research focuses on decision-making in various settings. In work on economic games, he explores how choices commonly presumed to be economic in nature actually hinge more on psychological factors, such as social norms and emotion.

For more info, see:

Professional Bio

Google Scholar

Twitter

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Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg.

 

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